What is the maximum tax benefit on under-construction property under Section 24B?

The maximum tax benefit on under-construction property that one can claim under Section 24B is Rs.2 Lakh.

How much tax benefit can I claim on the under-construction property under Section 80C?

You can claim tax benefits of up to Rs.1.5 Lakh on an under-construction property under Section 80C.

How to Claim Home Loan Tax Benefits on an Under-Construction Property

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5 min 23 May 2024

Claiming Tax Benefits on Under-Construction Property

Highlights:

Home Loan Tax Benefits on Under-Construction Properties
Housing Loan Tax Benefits under Section 22
Tax Exemptions under Section 131

In India, a home often symbolises stability, security, and a long-term investment. With various financing options such as Home Loans, buying a house has become more accessible, allowing homebuyers to turn their aspirations into reality. A housing loan is a type of secured loan that allows you to purchase a property at a competitive interest rate. Further, it can be repaid over a flexible tenure, ensuring that the repayment is easy and stress-free.

If you are planning to avail of a Home Loan to fund an under-construction property, it is important to understand the tax benefits available for such properties under the old tax regime.

Home Loan Tax Benefits on an Under-Construction Property

Tax benefits on under-construction properties can offer considerable savings to homebuyers. Once the construction is completed, you can claim tax deductions on the interest paid during the construction phase. The total interest paid can be claimed in five instalments after receiving possession. Let us understand these benefits in detail.

Home Loan Tax Benefit under Section 22

Section 22 of the Income Tax Act, 2025, allows you to claim deductions on the payments made towards the interest component of a Home Loan. If the loan is availed of to purchase a ready-to-move-in property, you can claim tax exemption up to a maximum of Rs.2 Lakh per year under this Section.

In the case of an under-construction property, you can claim tax exemption on the interest paid during the pre-construction phase. The total Home Loan tax benefit under Section 22 cannot exceed Rs.2 Lakh. One can claim this exemption in five equal instalments once the construction of the property is completed.

Also Read: How Much Tax Can be Saved Under Sections 123, 126, and 133?

Home Loan Tax Benefits on Under-Construction Properties under Section 131

As mentioned before, under Section 22 of the Income Tax Act, 2025, you can claim tax exemption on the interest paid during the construction phase after receiving possession of the property. In some cases, you can also claim deductions on payments made towards interest repayment during the pre-construction phase itself.

Section 131 states that borrowers can claim tax exemption up to a maximum of Rs.1.5 Lakh on payments made towards the interest component of their loan during the pre-construction phase itself if:

They have availed of housing loans between 1 April 2019 and 31 March 2022.
They do not have any other property in their name.
The stamp value of the property does not exceed Rs.45 Lakh.

Also Read: Income Tax Deduction under Section 130

Key Considerations while Availing of an Under-Construction Property Home Loan

Here are some of the factors to keep in mind while availing of a housing loan for an under-construction property:

Ensure that you know about the interest rates offered by various lenders. Once you have all the required details, use a Home Loan EMI Calculator to compare options and choose a lucrative deal.
Check your credit score before applying for a Home Loan. Typically, lenders prefer borrowers who have a credit score of 750 or above. If your credit score is below 750, you can improve it by paying EMIs on time, monitoring your credit report, and applying for loans only when necessary.
Assess your income consistency, savings, and current obligations to understand your monthly cash flow and determine the amount you can comfortably allocate to the Home Loan repayment.

Final Words

You can claim tax benefits on a Home Loan availed of to purchase an under-construction property. Familiarising yourself with the tax exemptions available under Section 22 and Section 131 can help you maximise savings.

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Frequently Asked Questions

Under Section 22, you can claim a tax benefit of up to Rs.2 Lakh on the interest paid towards a Home Loan for an under-construction property.

First-time homebuyers who have availed of a housing loan to purchase an under-construction property between 1 April 2019 and 31 March 2022 can claim tax benefits on the interest component up to a maximum of Rs.1.5 Lakh under Section Section 131.